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Ex-ECB Member Orphanides: Bond-Buying Plan No Silver Bullet

By

Nina Koeppen

Sep 19, 2012 9:29 am ET

The European Central Bank‘s plan to buy potentially unlimited amounts of government bonds of selected member states is legal but isn’t a silver bullet to end the region’s debt crisis, said Athanasios Orphanides, a former member of the ECB rate-setting Governing Council.

Addressing a research conference at the Swiss National Bank last Friday, Mr. Orphanides endorsed ECB President Mario Draghi‘s argument that Outright Monetary Transactions, as the latest bond-buying plan is known, don’t violate the bank’s core mandate, but mustn’t become a permanent form of support for ailing euro member states.

Instead, the euro zone’s permanent bailout facility, or European Stability Mechanism, should eventually undertake all purchases of state debt. Such a move would give the ECB the freedom to return to its “traditional role of providing the liquidity that may be necessary to implement ESM decisions, within its mandate,” Mr. Orphanides said. The SNB is due to publish the speech later this week.